n-02-64.pdf

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# Part III - Administrative, Procedural, and Miscellaneous

## Section 45D New Markets Tax Credit

Notice 2002-64

### PURPOSE

This notice provides guidance to taxpayers on federal tax benefits that do not
limit the availability of the new markets tax credit under 45D of the Internal Revenue
Code.

### BACKGROUND

Section 45D(a)(1) allows a new markets tax credit on a credit allowance date (as
defined in 45D(a)(3)) to a taxpayer who holds a qualified equity investment in a
qualified community development entity (CDE), as defined in 45D(c).

Section 45D(b)(1) provides that an equity investment in a CDE is a qualified
equity investment only if, among other things, the CDE uses substantially all of the
proceeds of the investment to make qualified low-income community investments.

Section 45D(d) provides that the term qualified low-income community
investment means (A) any capital or equity investment in, or loan to, any qualified
active low-income community business, (B) the purchase from another CDE of any loan
made by the entity which is a qualified low-income community investment, (C) financial

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counseling and other services specified in regulations prescribed by the Secretary to
businesses located in, or residents of, low-income communities, and (D) any equity
investment in, or loan to, any CDE.

Section 45D(i)(1) authorizes the Secretary to prescribe regulations as may be
appropriate to carry out 45D including regulations that limit the new markets tax credit
for investments that are directly or indirectly subsidized by other federal tax benefits
(including the low-income housing credit under 42 and the exclusion from gross
income under 103).

On December 26, 2001, the Treasury Department and the Internal Revenue
Service published temporary regulations in the Federal Register (66 Fed. Reg.
66307). The text of the temporary regulations does not provide guidance as to what
federal tax benefits limit the availability of the new markets tax credit.

### DISCUSSION

Until further guidance is provided, the availability of federal tax benefits, other
than 42, does not limit the availability of the new markets tax credit. The Treasury
Department and the Service are studying how 42 may limit the availability of the new
markets tax credit.

Federal tax benefits that do not limit the availability of the new markets tax credit
include, for example: (1) the rehabilitation credit under 47; (2) all depreciation
deductions under 167 and 168, including the additional first-year depreciation for

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certain property acquired after September 10, 2001, and before September 11, 2004,
under 168(k), and the expense deduction for certain depreciable property under
179; and (3) all tax benefits relating to certain designated areas such as empowerment
zones and enterprise communities under
1391 through 1397D, the District of
Columbia Enterprise Zone under
1400 through 1400B, renewal communities under
1400E through 1400J, and the New York Liberty Zone under 1400L.

Taxpayers may rely on this notice prior to the issuance of further guidance. In
the future, the Secretary may issue guidance that limits the new markets tax credit for
investments which are directly or indirectly subsidized by other federal tax benefits.
DRAFTING INFORMATION

The principal author of this notice is Greg Doran of the Office of Associate Chief
Counsel (Passthroughs and Special Industries). For further information regarding this
notice, contact Mr. Doran at (202) 622-3040 (not a toll-free call).